With the 2003 result season now officially over, Angelique Ruzicka compares the performances of the major UK composite insurers

The 2003 results of the UK's biggest insurers record some improvements, but a few will still have to convince their investors that they will make the grade. Royal & Sun Alliance (R&SA) suffered a group pre-tax loss of £146m for 2003. Despite this loss, the group is moving in the right direction, as its pre-tax loss for 2002 was a less impressive £953m.

R&SA did, however, set aside £500m to strengthen its reserves, which meant that its profits sunk to £27m in the third quarter of 2003. In the past, R&SA has struggled to hold more capital. Rowena Potter, analyst for Standard & Poor's, says: "It therefore has to go a long way to convince investors that it will be a force to be reckoned with. Also it has to show its reserve problems, particularly in the US, are well in the past."

R&SA is currently considering offers for its Scandinavian division, Codan. It could make up to £984m from the sale, which it may use to boost its capital or to expand its commercial underwriting capacity

But it's not all doom and gloom for R&SA. Its commercial lines have improved considerably over the past year and while its personal lines are not currently its strong point, things are looking up here too. But, it still has a fair way to go if it wants to match Norwich Union (NU) on the personal lines side.

While R&SA's direct personal lines operation, More Th>n, increased its net premium from £296m in 2002 to £352m in 2003, it saw its underwriting loss plummet from £9m in 2002 to £18m in 2003. Overall, R&SA saw its personal lines make an underwriting loss of £56m in 2003 while NU's underwriting loss was only £24m for 2003.

R&SA's commercial lines made substantial inroads in 2003, posting a profit of £77m compared to a profit of £1m in 2002. It achieved a combined ratio of 95%. Potter remains optimistic about R&SA. "It will build up its strength and its new management team should bode it well for the future," she said.

In stark contrast, NU's general insurance operating profits rose 10.6% to £676m in 2003 compared to 2002. NU's commercial lines net writtem premium improved, rising by 11% to £2.1bn, with a combined ratio of 96% as opposed to a combined ratio of 102% for 2002. In its report, the group maintained that it would stay focused on the small commercial business sector.

For 2003, the group's combined operating ratio for personal lines was 101%, the same as in 2002. NU also says its rates have improved by 3% for motor and 4% for homeowners in 2003.

Going forward, NU is aiming for a combined operating ratio of 100% for the next three years.

However, much success can also be attributed to Zurich Financial Services (ZFS). The Swiss insurance group turned its $3.4bn loss in 2002 into a $2.1bn profit in 2003. chief executive Jim Schiro has been credited with transforming the company since he took on the role in 2002.

For the second phase of the group's restructuring process, Schiro has set a target of 12% return on equity based on the group's operating profit and promised to regain its AA credit rating. Schiro also made no secret of the fact that ZFS is looking at potential acquisitions and it is understood that the company could possibly have its eyes on R&SA's Codan.

Royal Bank of Scotland Insurance, meanwhile, has also gone from strength to strength. In February this year it reported a 52% leap in income from £2,139m in 2002 to £3,245m for 2003. Excluding Churchill's results, the group says its income grew by 25%, or £525m.

The acquisition of Churchill Insurance in September 2003 has now made the company the second largest general insurer in the UK and the group saw the number of policies increase from 3.1 million to 3.4 million.

However, the question remains how long RBS Insurance can draw on the strength of Churchill. Analysts say that general insurers may face potential problems in the motor market soon.

Potter says: "The motor market has now peaked and will come down. However, it should not go down too much due to the FSA's solvency regulations."

For now, Direct Line and Churchill are still the largest in the motoring sector. However, Norwich Union may soon be in the running, which means all eyes will be on what it will do with AXA's direct motor business, once it firms up its plans on buying it.

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